1998-1999 Support Book 2 Documentation

Compensation

As the CSU's most important resource, faculty and staff are the integral ingredient for the continued development and improvement of the nation's strongest public system for baccalaureate and master education with a dramatic commitment to K-12 reform. To meet the current and future demand for access, CSU must have the resources to maintain and attract creative, innovative employees as it competes for their services with strong universities across the nation.

Investing in faculty is vital for maintaining the CSU's primary mission as a teaching-centered comprehensive university. The current lag in faculty compensation for the university's strongest teachers and scholars remains, quite critically, a shadow under which CSU's efforts to preserve its instructional base are diminished. The university's focus on compensation increases is only one component of strategies designed to address financial parity with comparison institutions and preservation of a quality faculty. Faculty renewal and development programs as well as reward structures that acknowledge excellence in teaching and learning are also crucial to CSU's efforts to maintain a quality faculty.

In light of the dramatic transformation of the California economy in which graduates will work, CSU must invest in compensation strategies that result in well-paid, highly-motivated, experienced faculty who can confront the challenges of the state's increasing demand for a highly skilled workforce and produce the best graduates possible. For 1998/99, compensation is the largest area of proposed funding.

Major Funding Focus ­ Faculty and Presidential Salary Lag

CSU has and continues to increase salary levels in an attempt to maintain a competitive position in the marketplace for its employees. Rewarding employees for their contributions to quality and effective delivery of instruction as enrollment demand increases is critical to providing access to all qualified students and fulfilling the university's primary mission as a teaching institution. However, university salaries continue to lag. Faculty and presidential salaries in 1997/98 are 10.8% and 30.5% below comparison institutions, respectively.

As a result of the recession in the early 1990s, disparity between CSU faculty and faculty at comparison institutions increased. In 1991/92, CSU faculty salaries lagged the average salary at nationwide comparison institutions by 4.01%. By 1995/96, the lag had increased to 12.7%. The 1996/97 lag was 9.5%, down 3.2% due in part to fairly level salaries at the comparison institutions and a slight increase in the average salary of CSU faculty. The decrease was also the result of a revision in the calculation methodology.

The California Postsecondary Education Commission (CPEC) is responsible for the collection of information and calculation methodology of the faculty salary lag. At the request of the Legislature in the Fall of 1995, CPEC - in consultation with a technical advisory committee composed of representatives from the University of California and CSU administration and faculty, the Department of Finance (DOF), and the Legislative Analyst's Office (LAO) - reviewed the existing faculty salary methodology and adopted changes to the calculation.

CSU Faculty Salary Lag based on CPEC Comparison Methodology

Using the same comparison institutions for faculty, CPEC reported CSU presidential salaries in 1997/98 lagged comparison institutions by 30.5%. Based in part on this finding, the CSU Board of Trustees approved an average salary increase of 10% for presidents. Both the 4% pool provided for faculty and the 10% average salary increase for presidents in 1997/98 were approximately one-third of their respective lags.

Eliminating the current faculty lag entirely would cost the CSU approximately $104 million. Eliminating the lag in presidential and executive compensation would cost $1.5 million. This estimate does not include any adjustments for the impact of the 4% compensation pool provided in 1997/98 on the 1998/99 lag calculation. The 1998/99 calculation for salary lag will not be available until December, 1997.

CSU is exploring additional avenues to reduce and eliminate salary lags. Efforts focused on development, renewal and reward structures can also assist in achieving salary parity with other institutions.

Employee Development and Reward Structures

The CSU has implemented a myriad of employee classification and compensation programs reaching far beyond anything the system has embarked on in the past. Adopted by the Trustees and supported by CSU administration, the primary focus of these programs is to continue recognizing and rewarding individual work performance and to maintain salaries and compensation structures that are competitive nationally. These programs also allow managers to develop positions, assign workload, and enhance employee development opportunities to achieve a competitive salary edge.

Specific changes in compensation structure include a performance pay program designed to compensate outstanding employees for their efforts -directly correlating work product with financial rewards. Performance pay enables managers to reach those employees whose contributions far surpass expectations. Approximately 20% of all compensation negotiated each fiscal year is designated for performance pay.

In addition, the Merit Salary Adjustment (MSA) program was eliminated and replaced with service-based salary increases. Service-based salary increases are negotiable each year and, like the MSA structure, are based on time served in the position. The 5% salary step structure was also replaced with open ranges for a majority of the nonfaculty classifications, providing more flexibility for movement along the classification range. For those classifications that remain in a step structure, the steps were split in half, creating an approximate 2.5% salary increase increment in place of the original 5% incremental step increase.

Year Four of the Compact ­ 1998/99 Compensation Proposal

The compensation increase proposal for fiscal year 1998/99 is projected to keep pace with CSU comparison institutions and make progress toward closing the salary lags that developed during the first half of the 1990's. The $71.3 million funding proposal will provide an aggregate pool for employee salary and benefits increases that will be negotiated with collective bargaining representatives and evaluated for non-represented employees. This compensation package is equivalent to approximately 4% above the CSU's current compensation costs and may be used to negotiate a compensation plan involving general salary adjustments, service based salary increases, as well as salary adjustments based on performance.

Over the last three years of the Governor's compact, CSU has provided a 10.5% aggregate compensation pool for both faculty and staff totaling $168 million. This includes the redirection of $10 million in funds initially allocated for price increase, physical plant maintenance and technology in 1997/98 to increase the compensation pool to 4%. Funding proposed for 1998/99 compensation increases would raise the aggregate pool to 14.5% over the four compact years and raise total funding provided for compensation increases under the compact to $239.3 million. However, approval and subsequent allocations based on this budget proposal by the CSU Board of Trustees for the 1998/99 fiscal year cannot be interpreted as an indication that any specific compensation increases, such as service based salary increases, have been agreed upon or are being funded.

Compensation Funding During the Four Year Compact

Fiscal Year

Compensation Pool

Cost*

1995/96

2.5%

$37.5 million

1996/97

4.0%

63.4

1997/98

4.0%

67.1

1998/99 Proposed

4.0%

71.3

Total

14.5%

$239.3 million

* Includes salaries and wages plus applicable benefit costs

Funding for the full-year cost of 1997/98 compensation increases (for example, 2 months of 1997/98 service-based faculty salary increases), will cost $2.3 million and is also included in the 1998/99 budget plan as a mandatory cost item.

Technical Calculations and Details

The following provides a technical description of how the 1998/99 compensation pool is calculated. The 1998/99 new compensation increase of $ 71.3 million is a 4.0% increase over the CSU's systemwide base budget for all employees. The 1998/99 base budget includes the following:

Full-year compensation costs from fiscal year 1997/98 not funded in the 1997/98 final budget (e.g., 2 months of 1997/98 service-based faculty salary increases).

Reductions in 1996/97 retirement costs not initially eliminated in the 1997/98 final budget. These funds will be de-allocated during the year from the state through a General Fund permanent appropriation transfer.

The table that follows, 1998/99 Cost of 1% Salary Increase, classifies budgeted funds used to derive the cost of a 1.0 % compensation increase and ultimately to calculate the Trustees' 4.0% compensation increase proposal. The table displays the budgeted compensation base and applicable increase for faculty and nonfaculty positions.

The budgeted compensation base, Column (A), is obtained from the CSU's Financial Information Reporting System (FIRMS) as reported by the campuses. Column (B) is prepared centrally and is calculated based on the cost estimated to fund full-year service-based salary increases (SSI) not funded in fiscal year 1997/98. For example, all SSIs are effective on employee anniversary dates. The CSU funds only that portion of the SSIs expended in the budget year which would be 10 months for an employee with an anniversary date on September 1. The remaining months are funded in the subsequent year. Column (C) is also prepared centrally and accounts for the loss of funding to be de-allocated later in the year for reduced retirement rates. Column (D) accounts for a base adjustment to Salaries and Wages plus applicable benefits as a result of permanent salary increases for the 1992/93 MSA adjustment to eligible CSEA employees. Both the retirement rate decreases and MSA base budget increase for CSEA employees directly impacts compensation calculations for the subsequent fiscal year. Column (E) is the total of the base plus adjustments while Column (F) illustrates the one percent calculation.